NEWS RELEASE CIBC ANNOUNCES THIRD QUARTER RESULTS Toronto, ON Aug 29, CIBC (TSX: CM) (NYSE: CM) today announced its financial results for the third quarter ended July 31,. Third quarter highlights Reported net income was $890 million, compared with $841 million for the third quarter a year ago, and $876 million for the prior quarter. Adjusted net income was $943 (1) million, compared with $866 (1) million for the third quarter a year ago, and $876 (1) million for the prior quarter. Reported diluted earnings per share was $2.16, compared with $2.00 for the prior year quarter, and $2.12 for the prior quarter. Adjusted diluted earnings per share was $2.29 (1), compared with $2.06 (1) for the prior year quarter, and $2.12 (1) for the prior quarter. Results for the third quarter of were affected by the following items of note: $38 million ($28 million after-tax or $0.07 per share) increase in the portion of the collective allowance recognized in Corporate and Other (2), which includes $56 million of estimated credit losses relating to the Alberta floods; $20 million ($15 million after-tax or $0.04 per share) charge resulting from a revision of estimated loss parameters on our unsecured lending portfolios; $8 million ($6 million after-tax or $0.01 per share) loss from the structured credit run-off business; and $5 million ($4 million after-tax or $0.01 per share) amortization of intangible assets. CIBC s Basel III Common Equity Tier 1 ratio at July 31, was 9.3%, and our Tier 1 capital ratio and Total capital ratio were 11.6% and 14.7%, respectively, on an all-in basis compared to Basel III Common Equity Tier 1 ratio of 9.7%, Tier 1 capital ratio of 12.2% and Total capital ratio of 15.5% in the prior quarter. Return on common shareholders equity for the third quarter was 21.6%. CIBC announced today its intention to purchase for cancellation up to a maximum of 8 million or approximately 2% of our outstanding common shares, subject to the approval of the Toronto Stock Exchange, under a normal course issuer bid over the next 12 months. CIBC delivered solid results this quarter across our core businesses in Retail and Business Banking, Wealth Management and Wholesale Banking, says Gerald T. McCaughey, President and Chief Executive Officer. These results reflect our strong focus on our clients as well as our underlying business fundamentals. CIBC continues discussions with TD and Aimia about a broad framework that would see CIBC sell approximately 50% of the current Aerogold portfolio to TD with the accounts being divested consisting primarily of credit card only clients. Consistent with our strategy to invest in and deepen client relationships, CIBC would retain the Aerogold credit card accounts held by clients with broader banking relationships. The parties will make an announcement when an agreement has been reached or when the discussions have concluded without an agreement. There can be no assurances that an agreement will be reached. In the event an agreement is not reached, CIBC retains its rights to exercise its legal options under the provisions of its existing contract with Aimia.
Core business performance Retail and Business Banking reported net income of $638 million for the third quarter, up $44 million or 7% from the same quarter last year. Excluding items of note, which include a revision of estimated loss parameters on our unsecured lending portfolios, net income was $654 million, up $58 million or 10% from the same quarter last year. Revenue of $2.1 billion was up $29 million or 1% from the third quarter of, primarily due to volume growth across most products and higher fees. Provision for credit losses of $241 million was down $32 million, or 12%, from the same quarter last year due to lower write-offs in the cards portfolio and lower losses in the business lending portfolio, partially offset by the charge resulting from a revision of estimated loss parameters noted above. During the third quarter of, Retail and Business Banking continued to make progress against our objectives of accelerating profitable revenue growth and enhancing the client experience: We continued our leadership position in mobile innovations by reaching one million active clients using CIBC s award-winning mobile banking App, which allows clients to perform many of their everyday banking transactions from their mobile device; We received three awards from ACT Canada for innovation related to the launch of our CIBC Mobile Payment App to help meet more of our clients needs, including, the Gold Award for a Canadian Innovation Benefiting Consumers; the Gold Award for a Canadian Innovation Benefiting Merchants; and the People's Choice Award; and We achieved a significant milestone in our distribution network expansion program with the opening of our 150 th branch since 2008. As part of the largest branch development in our history, we have hired more than 1,000 full-time equivalent employees to staff the 150 new, relocated or expanded locations, and installed close to 500 new ABMs to better serve our clients. Wealth Management reported net income of $102 million for the third quarter, up $26 million or 34% from the same quarter last year. Revenue of $458 million was up $57 million or 14% compared to the third quarter of, primarily due to higher client assets under management driven by market appreciation and higher net sales of long-term mutual funds, higher contribution from our investment in American Century Investments, and higher feebased and commission revenue. During the third quarter of, Wealth Management continued its progress in support of our strategic priority to build our wealth management platform: We achieved our 18 th consecutive quarter of retail net sales of long-term mutual funds and a year-to-date record of $4.6 billion; and We are on track with our transition plans for the acquisition of Atlantic Trust Private Wealth Management, announced in the second quarter, which we expect to complete in early fiscal 2014 following regulatory approvals. Wholesale Banking reported net income of $217 million for the third quarter, up $19 million or 10% from the prior quarter. Excluding items of note, adjusted net income was $223 million, up $30 million or 16% from the prior quarter. Revenue of $596 million was up $16 million or 3% from the prior quarter, primarily due to higher corporate credit products and debt issuance revenue, partially offset by losses in the structured credit run-off business compared to revenue in the prior quarter, and lower revenue in U.S. real estate finance. In support of its objective to be the premier client-focused wholesale bank centred in Canada, Wholesale Banking acted as: Lender in the financing of Hyundai Capital America s US$2.7 billion 3-year senior unsecured revolver; Financial advisor to Brookfield on the sale of Longview Timber to Weyerhauser for $2.7 billion; Joint bookrunner on OMERS Realty Corporation s two bond transactions for a total of $1.4 billion; Joint bookrunner on Choice Properties REIT s $460 million IPO of Trust Units, $600 million inaugural bond offering and $500 million senior unsecured credit facility; Joint bookrunner on Enbridge Inc.'s $600 million preferred share offering; Financial advisor to Manitoba Telecom Services Inc. (MTS) on the sale of its Allstream subsidiary to Accelero Capital for $504 million; and Sole agent for the Province of Alberta s $500 million re-opening of the Province s 2.90% Medium Term Notes due September 20, 2029.
In summary, CIBC delivered solid performance during the third quarter. The investments we are making in our retail and business banking, wealth management and wholesale banking businesses are furthering our strength and positioning us well for the future, says Mr. McCaughey. CIBC in our communities CIBC is committed to supporting causes that matter to our clients, our employees and our communities. During the quarter: CIBC marked the 15 th anniversary of CIBC Youthvision a one-of-a-kind scholarship program in partnership with Big Brothers Big Sisters of Canada and the YMCA that has changed the lives of over 450 young Canadians since 1999. Thirty-three grade 10 students across Canada were awarded a CIBC Youthvision Scholarship, each valued at $38,000. As part of the celebration, recipients, alumni and program partners across the country participated in CIBC s first online Youth Forum on Academic Success. As Lead Partner of the TORONTO 2015 Pan Am/Parapan Am Games, we marked the two-year countdown to the opening ceremonies with the announcement of the CIBC Team Next program - a $2 million investment to assist young athletes with financial support, opportunities to develop career and life skills, and mentorship from world class Canadian athletes. This investment is part of our $4 million commitment to create a lasting legacy of the games in Canada, which includes a new $1 million investment in programs to support Aboriginal youth, and $1 million in sport-related CIBC Youthvision scholarships. CIBC continued its strong commitment to bringing hope and support to those living with cancer. The CIBC co-sponsored Pink Tour hit the road in Ontario providing mobile breast health education to visitors in 90 communities; the CIBC Pink Collection TM launched nationally to raise funds for the Canadian Breast Cancer Foundation; and CIBC employees and clients raised $475,000 for life-saving equipment and research through its annual BC Children s Hospital campaign, and $625,000 for cancer research through the Tour CIBC Charles Bruneau - a five-day cycling fundraiser throughout Quebec. In partnership with Boys and Girls Clubs of Canada, CIBC and its employees joined many Canadians across the country to support National Day to End Bullying an anti-bullying awareness campaign to promote awareness, understanding and openness while showing support for all anti-bullying initiatives to ensure all children and youth feel a sense of safety and belonging. (1) For additional information, see the Non-GAAP measures section. (2) For additional information, see the Overview section. Investor and analyst inquiries should be directed to Geoff Weiss, Senior Vice-President, Planning, Analysis and Investor Relations, at 416-980-5093. Media inquiries should be directed to Mary Lou Frazer, Senior Director, Investor & Financial Communications, at 416-980-4111. The information on the following pages forms a part of this press release. (The board of directors of CIBC reviewed this press release prior to it being issued. CIBC s controls and procedures support the ability of the President and Chief Executive Officer and the Chief Financial Officer of CIBC to certify CIBC s third quarter financial report and controls and procedures. CIBC's CEO and CFO will voluntarily provide to the Securities and Exchange Commission a certification relating to CIBC's third quarter financial information, including the attached unaudited interim consolidated financial statements, and will provide the same certification to the Canadian Securities Administrators.)
Management s discussion and analysis Management s discussion and analysis (MD&A) is provided to enable readers to assess CIBC s financial condition and results of operations as at and for the quarter and nine July 31,, compared with corresponding periods. The MD&A should be read in conjunction with our Annual Report and the unaudited interim consolidated financial statements included in this report. Unless otherwise indicated, all financial information in this MD&A has been prepared in accordance with International Financial Reporting Standards (IFRS or GAAP) and all amounts are expressed in Canadian dollars. This MD&A is current as of August 28,. Additional information relating to CIBC is available on SEDAR at www.sedar.com and on the U.S. Securities and Exchange Commission s (SEC) website at www.sec.gov. No information on CIBC s website (www.cibc.com) should be considered incorporated herein by reference. A glossary of terms used throughout this quarterly report can be found on pages 182 to 185 of our Annual Report. External reporting changes Contents Basel III We adopted the Office of the 4 Third quarter financial highlights Superintendent of Financial Institution s (OSFI) revised Capital Adequacy Requirements (CAR) Guideline effective January. The revised CAR Guideline reflects the changes to capital 8 Review of quarterly financial requirements, commonly referred to as information Basel III, that have been issued by the Basel Committee on Banking 9 Strategic business units Supervision (BCBS). 21 Management of risk 21 Risk overview 5 Overview 21 Credit risk 5 Financial results 27 Market risk 7 Significant events 29 Liquidity risk 7 Outlook for calendar year 33 Strategic risk 33 Insurance risk 33 Operational risk 9 Non-GAAP measures 34 Technology, information and cyber security risk overview 34 Reputation and legal risk 10 Retail and Business Banking 34 Regulatory risk 12 Wealth Management 35 Environmental risk 13 Wholesale Banking 36 Accounting and 16 Corporate and Other control matters 17 Financial condition 36 Critical accounting policies 17 Review of condensed and estimates consolidated balance sheet 39 U.S. regulatory developments 17 Capital resources 39 Controls and procedures 20 Off-balance sheet arrangements A NOTE ABOUT FORWARD-LOOKING STATEMENTS: From time to time, we make written or oral forward-looking statements within the meaning of certain securities laws, including in this report, in other filings with Canadian securities regulators or the U.S. Securities and Exchange Commission and in other communications. These statements include, but are not limited to, statements made in the Overview Income taxes, Significant events, Outlook for calendar year, Review of quarterly financial information, Strategic business units overview Retail and Business Banking Aeroplan Agreement, Capital resources, Management of risk Credit risk, Management of risk Market risk, Management of risk Liquidity risk, and Accounting and control matters sections of this report and other statements about our operations, business lines, financial condition, risk management, priorities, targets, ongoing objectives, strategies and outlook for and subsequent periods. Forward-looking statements are typically identified by the words believe, expect, anticipate, intend, estimate and other similar expressions or future or conditional verbs such as will, should, would and could. By their nature, these statements require us to make assumptions, including the economic assumptions set out in the Overview Outlook for calendar year section of this report, and are subject to inherent risks and uncertainties that may be general or specific. A variety of factors, many of which are beyond our control, affect our operations, performance and results, and could cause actual results to differ materially from the expectations expressed in any of our forward-looking statements. These factors include: credit, market, liquidity, strategic, insurance, operational, reputation and legal, regulatory and environmental risk; the effectiveness and adequacy of our risk management and valuation models and processes; legislative or regulatory developments in the jurisdictions where we operate; amendments to, and interpretations of, risk-based capital guidelines and reporting instructions; the resolution of legal proceedings and related matters; the effect of changes to accounting standards, rules and interpretations; changes in our estimates of reserves and allowances; changes in tax laws; changes to our credit ratings; political conditions and developments; the possible effect on our business of international conflicts and the war on terror; natural disasters, public health emergencies, disruptions to public infrastructure and other catastrophic events; reliance on third parties to provide components of our business infrastructure; potential disruptions to our information technology systems and services, including the evolving risk of cyber attack; the accuracy and completeness of information provided to us by clients and counterparties; the failure of third parties to comply with their obligations to us and our affiliates; intensifying competition from established competitors and new entrants in the financial services industry; technological change; global capital market activity; changes in monetary and economic policy; currency value fluctuations; general business and economic conditions worldwide, as well as in Canada, the U.S. and other countries where we have operations, including increasing Canadian household debt levels and Europe s sovereign debt crisis; changes in market rates and prices which may adversely affect the value of financial products; our success in developing and introducing new products and services, expanding existing distribution channels, developing new distribution channels and realizing increased revenue from these channels; changes in client spending and saving habits; our ability to attract and retain key employees and executives; our ability to successfully execute our strategies and complete and integrate acquisitions and joint ventures; and our ability to anticipate and manage the risks associated with these factors. This list is not exhaustive of the factors that may affect any of our forward-looking statements. These and other factors should be considered carefully and readers should not place undue reliance on our forward-looking statements. We do not undertake to update any forward-looking statement that is contained in this report or in other communications except as required by law. CIBC THIRD QUARTER 3
Third quarter financial highlights Unaudited Apr. 30 As at or for the three As at or for the nine Financial results ($ millions) Net interest income $ 1,883 $ 1,823 $ 1,883 $ 5,561 $ 5,478 Non-interest income 1,380 1,316 1,266 4,022 3,912 Total revenue 3,263 3,139 3,149 9,583 9,390 Provision for credit losses 320 265 317 850 963 Non-interest expenses 1,874 1,821 1,831 5,682 5,386 Income before taxes 1,069 1,053 1,001 3,051 3,041 Income taxes 179 177 160 487 554 Net income $ 890 $ 876 $ 841 $ 2,564 $ 2,487 Net income attributable to non-controlling interests $ $ 2 $ 2 $ 4 $ 6 Preferred shareholders 25 25 29 75 129 Common shareholders 865 849 810 2,485 2,352 Net income attributable to equity shareholders $ 890 $ 874 $ 839 $ 2,560 $ 2,481 Financial measures Reported efficiency ratio 57.4 % 58.0 % 58.1 % 59.3 % 57.4 % Adjusted efficiency ratio (1) 55.6 % 56.6 % 56.1 % 56.1 % 55.5 % Loan loss ratio (2) 0.45 % 0.47 % 0.52 % 0.45 % 0.53 % Return on common shareholders equity 21.6 % 22.3 % 21.8 % 21.3 % 22.1 % Net interest margin 1.85 % 1.85 % 1.87 % 1.84 % 1.85 % Net interest margin on average interest-earning assets (3) 2.12 % 2.14 % 2.18 % 2.13 % 2.15 % Return on average assets (4) 0.88 % 0.89 % 0.84 % 0.85 % 0.84 % Return on average interest-earning assets (3)(4) 1.01 % 1.03 % 0.98 % 0.98 % 0.98 % Total shareholder return (2.04)% (2.02)% (0.33)% 2.83 % 1.29 % Common share information Per share ($) basic earnings $ 2.16 $ 2.12 $ 2.00 $ 6.19 $ 5.83 reported diluted earnings 2.16 2.12 2.00 6.19 5.83 adjusted diluted earnings (1) 2.29 2.12 2.06 6.56 6.03 dividends 0.96 0.94 0.90 2.84 2.70 book value 40.11 39.11 36.57 40.11 36.57 Share price ($) high 80.64 84.70 74.68 84.70 78.00 low 74.10 77.02 69.70 74.10 68.43 closing 77.93 80.57 73.35 77.93 73.35 Shares outstanding (thousands) weighted-average basic 399,952 400,400 405,165 401,237 403,108 weighted-average diluted 400,258 400,812 405,517 401,621 403,571 end of period 399,992 399,811 405,626 399,992 405,626 Market capitalization ($ millions) $ 31,171 $ 32,213 $ 29,753 $ 31,171 $ 29,753 Value measures Dividend yield (based on closing share price) 4.9 % 4.8 % 4.9 % 4.9 % 4.9 % Reported dividend payout ratio 44.4 % 44.2 % 45.0 % 45.8 % 46.3 % Adjusted dividend payout ratio (1) 41.8 % 44.2 % 43.7 % 43.2 % 44.7 % Market value to book value ratio 1.94 2.06 2.01 1.94 2.01 On- and off-balance sheet information ($ millions) Cash, deposits with banks and securities $ 76,451 $ 78,361 $ 70,776 $ 76,451 $ 70,776 Loans and acceptances, net of allowance 254,221 252,292 253,616 254,221 253,616 Total assets 397,547 397,705 401,010 397,547 401,010 Deposits 311,490 307,353 305,096 311,490 305,096 Common shareholders equity 16,044 15,638 14,834 16,044 14,834 Average assets 403,081 404,782 400,543 403,377 396,136 Average interest-earning assets (3) 351,753 350,136 342,883 349,631 340,117 Average common shareholders equity 15,921 15,583 14,760 15,622 14,228 Assets under administration (5) 1,460,311 1,468,429 1,377,012 1,460,311 1,377,012 Balance sheet quality measures (6) Basel III Transitional basis Risk-weighted assets (RWA) ($ billions) $ 152.2 $ 138.3 n/a $ 152.2 n/a Common Equity Tier 1 (CET1) ratio 10.7 % 11.5 % n/a 10.7 % n/a Tier 1 capital ratio 11.4 % 12.4 % n/a 11.4 % n/a Total capital ratio 14.0 % 15.2 % n/a 14.0 % n/a Basel III All-in basis RWA ($ billions) $ 134.0 $ 125.9 n/a $ 134.0 n/a CET1 ratio 9.3 % 9.7 % n/a 9.3 % n/a Tier 1 capital ratio 11.6 % 12.2 % n/a 11.6 % n/a Total capital ratio 14.7 % 15.5 % n/a 14.7 % n/a Basel II RWA ($ billions) n/a n/a $ 114.9 n/a $ 114.9 Tier 1 capital ratio n/a n/a 14.1 % n/a 14.1 % Total capital ratio n/a n/a 17.7 % n/a 17.7 % Other information Retail / wholesale ratio (1)(7) 77 % / 23 % 78 % / 22 % 76 % / 24 % 77 % / 23 % 76 % / 24 % Full-time equivalent employees (8) 43,516 43,057 42,380 43,516 42,380 (1) For additional information, see the Non-GAAP measures section. (2) The ratio is calculated as the provision for credit losses on impaired loans to average loans and acceptances, net of allowance for credit losses. The provision for credit losses on impaired loans includes provision for: individual allowance; collective allowance on personal, scored small business and mortgages that are greater than 90 days delinquent; and net credit card write-offs. (3) Average interest-earning assets include interest-bearing deposits with banks, securities, securities borrowed or purchased under resale agreements, and loans net of allowances. (4) Net income expressed as a percentage of average assets or average interest-earning assets. (5) Includes the full contract amount of assets under administration or custody under a 50/50 joint venture between CIBC and The Bank of New York Mellon. (6) Capital measures for fiscal year are based on Basel III whereas fiscal measures are based on Basel II. (7) For the purposes of calculating this ratio, Retail includes Retail and Business Banking, Wealth Management, and International banking operations (reported as part of Corporate and Other). The ratio represents the amount of economic capital attributed to these businesses as at the end of the period. (8) Full-time equivalent employees is a measure that normalizes the number of full-time and part-time employees, base plus commissioned employees, and 100% commissioned employees into equivalent fulltime units based on actual hours of paid work during a given period. n/a Not applicable. 4 CIBC THIRD QUARTER
Overview Financial results Reported net income for the quarter was $890 million, compared with $841 million for the same quarter last year and $876 million for the prior quarter. Reported net income for the nine July 31, was $2,564 million, compared with $2,487 million for the same period in. Adjusted net income for the quarter was $943 (1) million, compared with $866 (1) million for the same quarter last year and $876 (1) million for the prior quarter. Adjusted net income for the nine July 31, was $2,714 (1) million, compared with $2,539 (1) million for the same period in. Reported diluted earnings per share (EPS) for the quarter was $2.16, compared with $2.00 for the same quarter last year and $2.12 for the prior quarter. Reported diluted EPS for the nine July 31, was $6.19 compared with $5.83 for the same period in. Adjusted diluted EPS for the quarter was $2.29 (1), compared with $2.06 (1) for the same quarter last year and $2.12 (1) for the prior quarter. Adjusted diluted EPS for the nine July 31, was $6.56 (1), compared with $6.03 (1) for the same period in. Net income for the current quarter was affected by the following items of note: $38 million ($28 million after-tax) increase in the portion of the collective allowance recognized in Corporate and Other (2), which includes $56 million of estimated credit losses relating to the Alberta floods; $20 million ($15 million after-tax) charge resulting from a revision of estimated loss parameters on our unsecured lending portfolios (Retail and Business Banking); $8 million ($6 million after-tax) loss from the structured credit run-off business (Wholesale Banking); and $5 million ($4 million after-tax) amortization of intangible assets ($1 million after-tax in Retail and Business Banking, $1 million after-tax in Wealth Management, and $2 million after-tax in Corporate and Other). The above items of note decreased revenue by $7 million, increased provision for credit losses by $58 million, non-interest expenses by $6 million, and decreased income tax expenses by $18 million. In aggregate, these items of note decreased net income by $53 million. Net interest income (3) Net interest income was comparable with the same quarter last year as lower treasury-related net interest income was offset by higher revenue from corporate credit products and volume growth across most retail products. Net interest income was up $60 million or 3% from the prior quarter, primarily due to additional days in the current quarter, volume growth across most retail products, higher revenue from corporate credit products and treasury-related net interest income, partially offset by narrower retail spreads and lower trading-related net interest income. Net interest income for the nine July 31, was up $83 million or 2% from the same period in, primarily due to higher tradingrelated net interest income, wider retail spreads, and higher revenue from corporate credit products, partially offset by lower treasury-related net interest income. The same period in included the hedge accounting loss on leveraged leases shown as an item of note. Non-interest income (3) Non-interest income was up $114 million or 9% from the same quarter last year, and up $64 million or 5% from the prior quarter, primarily due to higher feebased revenue and trading income, partially offset by lower gains net of write-downs on available-for-sale (AFS) securities. Non-interest income for the nine July 31, was up $110 million or 3% from the same period in, primarily due to higher feebased revenue, partially offset by lower trading income. The current year period had a gain on sale of the private wealth management business shown as an item of note, while the prior year period had a gain relating to an equity-accounted investment in our Wealth Management strategic business unit (SBU), also shown as an item of note. Provision for credit losses Provision for credit losses was comparable with the same quarter last year. In Retail and Business Banking, the provision was down mainly due to lower writeoffs in the cards portfolio and lower losses in the business lending portfolio, partially offset by a charge resulting from a revision of estimated loss parameters on our unsecured lending portfolios, shown as an item of note. In Wholesale Banking, the provision was down due to lower losses in the U.S. real estate finance and Canadian credit portfolios, partially offset by higher losses in the exited European leveraged finance portfolio. In Corporate and Other, the provision was up mainly due to an increase in the collective allowance, which includes $56 million of estimated credit losses relating to the Alberta floods, shown as an item of note. Provision for credit losses was up $55 million or 21% from the prior quarter. In Retail and Business Banking, the provision was up mainly due to the charge resulting from a revision of estimated loss parameters noted above, partially offset by lower losses in the personal lending portfolio. In Wholesale Banking, the provision was down mainly due to lower losses in the U.S. real estate finance and exited European leveraged finance portfolios. In Corporate and Other, the provision was up mainly due to the increase in the collective allowance noted above. Provision for credit losses for the nine July 31, was down $113 million or 12% from the same period in. In Retail and Business Banking, the provision was down mainly due to lower write-offs and bankruptcies in the cards portfolio, partially offset by the charge resulting from a revision of estimated loss parameters noted above. In Wholesale Banking, the provision was down mainly due to lower losses in the U.S. real estate finance portfolio, partially offset by higher losses in the exited European leveraged finance portfolio. In Corporate and Other, the provision was up mainly due to the increase in the collective allowance noted above, partially offset by lower losses in FirstCaribbean International Bank Limited (CIBC FirstCaribbean). Non-interest expenses Non-interest expenses were up $43 million or 2% compared with the same quarter last year, and up $53 million or 3% from the prior quarter, primarily due to higher employee-related compensation. Non-interest expenses for the nine July 31, were up $296 million or 5% from the same period in, primarily due to higher expenses in the structured credit run-off business in the current period, which included a settlement charge shown as an item of note, and higher employeerelated compensation. (1) For additional information, see the Non-GAAP measures section. (2) Relates to the collective allowance, except for (i) residential mortgages greater than 90 days delinquent; (ii) personal loans and scored small business loans greater than 30 days delinquent; and (iii) net writeoffs for the cards portfolio, which are all reported in the respective SBUs. (3) Trading activities and related risk management strategies can periodically shift trading income between net interest income and non-interest income. Therefore, we view total trading income as the most appropriate measure of trading performance. CIBC THIRD QUARTER 5
Income taxes Income tax expense was up $19 million or 12% from the same quarter last year, and up $2 million or 1% from the prior quarter, primarily due to higher income. Income tax expense for the nine July 31, was down $67 million or 12% from the same period in, mainly due to higher tax-exempt income. In prior years, the Canada Revenue Agency issued reassessments disallowing the deduction of approximately $3 billion of the 2005 Enron settlement payments and related legal expenses. The matter is currently in litigation. In response to a motion by CIBC to strike the Crown s replies, the Tax Court of Canada (TCC) ordered and the Federal Court of Appeal confirmed that the Crown must submit amended replies. On July 30,, the Crown filed a Fresh as Amended Reply with the TCC. We expect the TCC trial on the deductibility of the Enron payments to commence in the latter part of 2014 or early 2015. Should we successfully defend our tax filing position in its entirety, we would recognize an additional accounting tax benefit of $214 million and taxable refund interest of approximately $192 million. Should we fail to defend our position in its entirety, we would incur an additional tax expense of approximately $866 million and non-deductible interest of approximately $124 million. Foreign exchange The estimated impact of U.S. dollar translation on key lines of our interim consolidated statement of income, as a result of changes in average exchange rates, is as follows: $ millions, vs., For the three, vs. Apr. 30, For the nine, vs., Estimated increase in: Total revenue $ 9 $ 9 $ 12 Provision for credit losses 1 1 1 Non-interest expense 3 3 5 Income taxes Net income 5 5 6 Average US$ appreciation relative to C$ 2 % 2 % 1 % Impact of items of note in prior periods Net income for the prior quarters was affected by the following items of note: Q2, $27 million ($20 million after-tax) income from the structured credit run-off business (Wholesale Banking); $21 million ($15 million after-tax) loan losses in our exited European leveraged finance portfolio (Wholesale Banking); and $6 million ($5 million after-tax) amortization of intangible assets ($1 million after-tax in Retail and Business Banking, $1 million after-tax in Wealth Management, and $3 million after-tax in Corporate and Other). The above items of note increased revenue by $29 million, provision for credit losses by $21 million and non-interest expenses by $8 million. In aggregate, the impact of these items of note on net income was nil. Q1, $148 million ($109 million after-tax) loss from the structured credit run-off business, including the charge in respect of a settlement of the U.S. Bankruptcy Court adversary proceeding brought by the Estate of Lehman Brothers Holdings, Inc. (Wholesale Banking); $16 million ($16 million after-tax) gain, net of associated expenses, on the sale of our Hong Kong and Singapore-based private wealth management business (Corporate and Other); and $5 million ($4 million after-tax) amortization of intangible assets ($2 million after-tax in Retail and Business Banking and $2 million after-tax in Corporate and Other). The above items of note increased revenue by $28 million, non-interest expenses by $165 million, and decreased income tax expenses by $40 million. In aggregate, these items of note decreased net income by $97 million. Q3, $26 million ($19 million after-tax) loss from the structured credit run-off business (Wholesale Banking); and $7 million ($6 million after-tax) amortization of intangible assets ($2 million after-tax in Retail and Business Banking and $4 million after-tax in Corporate and Other). The above items of note decreased revenue by $24 million, increased non-interest expenses by $9 million, and decreased income tax expenses by $8 million. In aggregate, these items of note decreased net income by $25 million. Q2, $28 million ($16 million after-tax) hedge accounting loss on leveraged leases (Wholesale Banking); $10 million ($7 million after-tax) loss from the structured credit run-off business (Wholesale Banking); and $7 million ($6 million after-tax) amortization of intangible assets ($2 million after-tax in Retail and Business Banking, $1 million after-tax in Wealth Management and $3 million after-tax in Corporate and Other). The above items of note decreased revenue by $29 million, increased non-interest expenses by $16 million, and decreased income tax expenses by $16 million. In aggregate, these items of note decreased net income by $29 million. In addition, net income attributable to common shareholders was also affected by the following item of note: $12 million premium paid on preferred share redemptions. 6 CIBC THIRD QUARTER
Q1, $37 million ($35 million after-tax) gain relating to an equity-accounted investment (Wealth Management); $35 million ($26 million after-tax) loss from the structured credit run-off business (Wholesale Banking); and $9 million ($7 million after-tax) amortization of intangible assets ($2 million after-tax in Retail and Business Banking and $5 million after-tax in Corporate and Other). The above items of note increased revenue by $10 million, non-interest expenses by $17 million, and decreased income tax expenses by $9 million. In aggregate, these items of note increased net income by $2 million. In addition, net income attributable to common shareholders was also affected by the following item of note: $18 million premium paid on preferred share redemptions. Significant events Atlantic Trust Private Wealth Management On April 11,, CIBC announced that it entered into a definitive agreement to acquire Atlantic Trust Private Wealth Management (Atlantic Trust) from its parent company, Invesco Ltd., for US$210 million. Atlantic Trust, which has approximately US$20 billion in assets under management, provides integrated wealth management solutions for high-net-worth individuals, families, foundations and endowments. The transaction is subject to regulatory approval and is expected to close in early fiscal 2014. The results of the acquired business will be consolidated from the date of close and will be included in the Wealth Management SBU. Private wealth management (Asia) On January 25,, CIBC sold its stand-alone Hong Kong and Singapore-based private wealth management business. This niche advisory and brokerage business, which was included in International banking within Corporate and Other, provided private banking services to a small number of high-net-worth individuals in the Asia-Pacific region and had assets under management of approximately $2 billion. As a result, CIBC recognized a gain, net of associated expenses, of $16 million ($16 million after-tax) during the quarter ended January 31,. CIBC s other businesses in Asia were unaffected by this transaction. Lehman Brothers bankruptcy proceedings During the quarter ended January 31,, CIBC recognized a US$150 million charge (US$110 million after-tax) in respect of the full settlement of the U.S. Bankruptcy Court adversary proceeding brought by the Estate of Lehman Brothers Holdings, Inc. challenging the reduction to zero of our unfunded commitment on a variable funding note. In 2008, we recognized a US$841 million gain on the variable funding note as further detailed in Note 23 of the consolidated financial statements. Outlook for calendar year Moderate economic growth is likely to continue in both Canada and the U.S. in. Real GDP gains are likely to be in the vicinity of 1.5% to 2.0% in the U.S. and Canada, in the face of soft growth overseas, and ongoing fiscal tightening. There are tentative signs that Europe is emerging from recession. In the U.S., improving household credit fundamentals and continued recovery in home building will help offset the drag from tighter fiscal policy. Canada s economy will benefit from a pick-up in oil output, but will see somewhat less robust domestic demand. Government spending will remain a slight negative for growth as fiscal tightening continues. Consumer demand will be supported by ongoing job creation, but will be held close to income gains as the appetite for credit is held in check by existing high debt levels, even with the Bank of Canada avoiding interest rate increases through. Housing is turning from a strong growth contributor to a slight negative this year as new construction activity seems to be retreating from its peak. Retail and Business Banking is expected to face slightly slower growth in demand for mortgages, while consumer credit demand could continue to see limited growth. Demand for business credit should continue at a healthy growth rate. Slightly slower economic growth is unlikely to result in deterioration in household credit quality, with the unemployment rate holding nearly steady. Wealth Management should see an improvement in demand for equities and other higher risk assets over the remainder of the year as global uncertainties are gradually resolved. Wholesale Banking will continue to benefit from a healthy pace of debt financings as both governments and corporations take advantage of low interest rates and robust market conditions. Equity issuance could improve over the course of the year as global growth uncertainties are gradually resolved, a trend that should also support merger activity. Corporate credit demand should be supported by low interest rates, although the public debt market and internal cash flows will be a competitive source of funding. CIBC THIRD QUARTER 7
Review of quarterly financial information $ millions, except per share amounts, for the three 2011 Apr. 30 Jan. 31 Oct. 31 Apr. 30 Jan. 31 Oct. 31 Revenue Retail and Business Banking $ 2,114 $ 2,036 $ 2,065 $ 2,036 $ 2,085 $ 2,004 $ 2,029 $ 2,076 Wealth Management 458 443 432 420 401 418 435 396 Wholesale Banking (1) 596 580 563 575 527 463 495 561 Corporate and Other (1) 95 80 121 128 136 199 198 162 Total revenue $ 3,263 $ 3,139 $ 3,181 $ 3,159 $ 3,149 $ 3,084 $ 3,157 $ 3,195 Net interest income $ 1,883 $ 1,823 $ 1,855 $ 1,848 $ 1,883 $ 1,753 $ 1,842 $ 1,776 Non-interest income 1,380 1,316 1,326 1,311 1,266 1,331 1,315 1,419 Total revenue 3,263 3,139 3,181 3,159 3,149 3,084 3,157 3,195 Provision for credit losses 320 265 265 328 317 308 338 306 Non-interest expenses 1,874 1,821 1,987 1,829 1,831 1,764 1,791 1,920 1,069 1,053 929 1,002 1,001 1,012 1,028 969 Income taxes 179 177 131 150 160 201 193 212 Net income $ 890 $ 876 $ 798 $ 852 $ 841 $ 811 $ 835 $ 757 Net income attributable to: Non-controlling interests $ $ 2 $ 2 $ 2 $ 2 $ 1 $ 3 $ 3 Equity shareholders 890 874 796 850 839 810 832 754 EPS basic $ 2.16 $ 2.12 $ 1.91 $ 2.02 $ 2.00 $ 1.90 $ 1.94 $ 1.80 diluted 2.16 2.12 1.91 2.02 2.00 1.90 1.93 1.79 (1) Wholesale Banking revenue and income taxes are reported on a taxable equivalent basis (TEB) with an equivalent offset in the revenue and income taxes of Corporate and Other. Our quarterly results are modestly affected by seasonal factors. The second quarter has fewer days as compared with the other quarters, generally leading to lower earnings. The summer months (July third quarter and August fourth quarter) typically experience lower levels of capital markets activity, which affects our brokerage, investment management, and wholesale banking activities. Revenue Retail and Business Banking revenue has benefitted from volume growth across most retail products, offset to some extent by the continued low interest rate environment and attrition in our exited FirstLine mortgage broker business. Wealth Management revenue has benefitted from continued strong net sales of long-term mutual funds and higher average assets under management. Income from our proportionate share in American Century Investments (ACI) is trending higher. A gain related to this equity-accounted investment was included in the first quarter of. Wholesale Banking revenue is influenced to a large extent by capital market conditions, and growth in the equity derivatives business which has resulted in higher tax-exempt income. Revenue has also been impacted by the volatility in the structured credit run-off business. The second quarter of included a hedge accounting loss on leveraged leases. The fourth quarter of included a gain on sale of interests in entities in relation to the acquisition of TMX Group Inc. by Maple Group Acquisition Corporation and a loss relating to the change in valuation of collateralized derivatives to an overnight index swap (OIS) basis. Corporate and Other includes the offset related to tax-exempt income noted above. The second half of and year-to-date had lower unallocated treasury revenue. The first quarter of included a gain on sale of the private wealth management business (Asia). Provision for credit losses Provision for credit losses is dependent upon the credit cycle in general and on the credit performance of the loan portfolios. In Retail and Business Banking, losses in the cards portfolio declined throughout and. The current quarter had a charge resulting from a revision of estimated loss parameters on our unsecured lending portfolios. In Wholesale Banking, the fourth quarter of 2011 had higher losses in the exited European leveraged finance portfolio. During, we had higher losses in the U.S. real estate finance portfolio and the fourth quarter included losses in the exited U.S. leveraged finance portfolio. The second and third quarter of had higher losses in the exited European leveraged finance portfolio. In Corporate and Other, the current quarter had an increase in the collective allowance, which includes $56 million of estimated credit losses relating to the Alberta floods. Non-interest expenses Non-interest expenses have fluctuated over the period largely due to changes in employee-related compensation and benefits, including pension expense. The first quarter of had higher expenses in the structured credit run-off business. Income taxes Income taxes vary with changes in income subject to tax, and the jurisdictions in which the income is earned. Taxes can also be affected by the impact of significant items. Tax-exempt income has generally been trending higher for the periods presented in the table above. 8 CIBC THIRD QUARTER
Non-GAAP measures We use a number of financial measures to assess the performance of our business lines. Some measures are calculated in accordance with GAAP (IFRS), while other measures do not have a standardized meaning under GAAP, and accordingly, these measures may not be comparable with similar measures used by other companies. Investors may find these non-gaap measures useful in analyzing financial performance. For a more detailed discussion on our non-gaap measures, see page 19 of the Annual Report. The following table provides a reconciliation of non-gaap to GAAP measures related to CIBC on a consolidated basis. $ millions As at or for the three Apr. 30 As at or for the nine Reported and adjusted diluted EPS Reported net income attributable to diluted common shareholders A $ 865 $ 849 $ 810 $ 2,485 $ 2,352 After-tax impact of items of note (1) 53 25 150 82 Adjusted net income attributable to diluted common shareholders (2) B $ 918 $ 849 $ 835 $ 2,635 $ 2,434 Diluted weighted-average common shares outstanding (thousands) C 400,258 400,812 405,517 401,621 403,571 Reported diluted EPS ($) A/C $ 2.16 $ 2.12 $ 2.00 $ 6.19 $ 5.83 Adjusted diluted EPS ($) (2) B/C 2.29 2.12 2.06 6.56 6.03 Reported and adjusted efficiency ratio Reported total revenue D $ 3,263 $ 3,139 $ 3,149 $ 9,583 $ 9,390 Pre-tax impact of items of note (1) 7 (29) 24 (50) 43 TEB 90 97 71 279 189 Adjusted total revenue (2) E $ 3,360 $ 3,207 $ 3,244 $ 9,812 $ 9,622 Reported non-interest expenses F $ 1,874 $ 1,821 $ 1,831 $ 5,682 $ 5,386 Pre-tax impact of items of note (1) (6) (8) (9) (179) (42) Adjusted non-interest expenses (2) G $ 1,868 $ 1,813 $ 1,822 $ 5,503 $ 5,344 Reported efficiency ratio F/D 57.4 % 58.0 % 58.1 % 59.3 % 57.4 % Adjusted efficiency ratio (2) G/E 55.6 % 56.6 % 56.1 % 56.1 % 55.5 % Reported and adjusted dividend payout ratio Reported net income attributable to common shareholders H $ 865 $ 849 $ 810 $ 2,485 $ 2,352 After-tax impact of items of note (1) 53 25 150 82 Adjusted net income attributable to common shareholders (2) I $ 918 $ 849 $ 835 $ 2,635 $ 2,434 Dividends paid to common shareholders J $ 384 $ 376 $ 365 $ 1,139 $ 1,089 Reported dividend payout ratio J/H 44.4 % 44.2 % 45.0 % 45.8 % 46.3 % Adjusted dividend payout ratio (2) J/I 41.8 % 44.2 % 43.7 % 43.2 % 44.7 % $ millions, for the three Retail and Business Banking Wealth Management Wholesale Banking Corporate and Other Reported net income $ 638 $ 102 $ 217 $ (67) $ 890 After-tax impact of items of note (1) 16 1 6 30 53 Adjusted net income (2) $ 654 $ 103 $ 223 $ (37) $ 943 Apr. 30 Reported net income $ 604 $ 92 $ 198 $ (18) $ 876 After-tax impact of items of note (1) 1 1 (5) 3 Adjusted net income (2) $ 605 $ 93 $ 193 $ (15) $ 876 Reported net income $ 594 $ 76 $ 156 $ 15 $ 841 After-tax impact of items of note (1) 2 19 4 25 Adjusted net income (2) $ 596 $ 76 $ 175 $ 19 $ 866 CIBC Total $ millions, for the nine Reported net income $ 1,853 $ 284 $ 506 $ (79) $ 2,564 After-tax impact of items of note (1) 19 2 110 19 150 Adjusted net income (2) $ 1,872 $ 286 $ 616 $ (60) $ 2,714 Reported net income $ 1,717 $ 255 $ 420 $ 95 $ 2,487 After-tax impact of items of note (1) 6 (34) 68 12 52 Adjusted net income (2) $ 1,723 $ 221 $ 488 $ 107 $ 2,539 (1) Reflects impact of items of note under Financial results section. (2) Non-GAAP measure. Strategic business units overview CIBC has three SBUs Retail and Business Banking, Wealth Management and Wholesale Banking. These SBUs are supported by six functional groups Technology and Operations, Corporate Development, Finance, Treasury, Administration, and Risk Management, which form part of Corporate and Other. The revenue, expenses and balance sheet resources of these functional groups are generally allocated to the business lines within the SBUs. Corporate and Other also includes our International banking operations comprising mainly CIBC FirstCaribbean, strategic investments in the CIBC Mellon joint ventures and The Bank of N.T. Butterfield & Son Limited, and other income statement and balance sheet items not directly attributable to the business lines. The key methodologies and assumptions used in reporting financial results of our SBUs are provided on page 22 of the Annual Report. CIBC THIRD QUARTER 9
Retail and Business Banking Retail and Business Banking provides clients across Canada with financial advice, banking, investment, and authorized insurance products and services through a strong team of advisors and more than 1,100 branches, as well as our ABMs, mobile sales force, and telephone, online and mobile banking. Results (1) $ millions Apr. 30 For the three For the nine Revenue Personal banking $ 1,672 $ 1,596 $ 1,595 $ 4,891 $ 4,693 Business banking 384 372 382 1,136 1,123 Other 58 68 108 188 302 Total revenue 2,114 2,036 2,085 6,215 6,118 Provision for credit losses 241 233 273 715 825 Non-interest expenses 1,033 1,008 1,035 3,062 3,029 Income before taxes 840 795 777 2,438 2,264 Income taxes 202 191 183 585 547 Net income $ 638 $ 604 $ 594 $ 1,853 $ 1,717 Net income attributable to: Equity shareholders (a) $ 638 $ 604 $ 594 $ 1,853 $ 1,717 Efficiency ratio 48.9 % 49.5 % 49.7 % 49.3 % 49.5 % Return on equity (2) 60.5 % 57.7 % 60.1 % 58.8 % 58.7 % Charge for economic capital (2) (b) $ (132) $ (131) $ (126) $ (395) $ (381) Economic profit (2) (a+b) $ 506 $ 473 $ 468 $ 1,458 $ 1,336 Full-time equivalent employees 22,186 21,987 21,588 22,186 21,588 (1) For additional segmented information, see the notes to the interim consolidated financial statements. (2) For additional information, see the Non-GAAP measures section. Financial overview Net income for the quarter was $638 million, up $44 million from the same quarter last year, primarily due to a lower provision for credit losses and higher revenue. Net income was up $34 million from the prior quarter, primarily due to higher revenue, partially offset by higher non-interest expenses. Net income for the nine July 31, was $1,853 million, up $136 million from the same period in, mainly due to a lower provision for credit losses and higher revenue, partially offset by higher non-interest expenses. Revenue Revenue was up $29 million or 1% from the same quarter last year. Personal banking revenue was up $77 million, primarily due to volume growth across most products and higher fees. Business banking revenue was up $2 million, due to higher fees and volume growth, partially offset by narrower spreads. Other revenue was down $50 million mainly due to lower treasury allocations and lower revenue in our exited FirstLine mortgage broker business. Revenue was up $78 million or 4% from the prior quarter. Personal banking revenue was up $76 million, primarily due to additional days in the quarter, higher fees and volume growth, partially offset by narrower spreads. Business banking revenue was up $12 million due to additional days in the quarter and higher fees, partially offset by narrower spreads. Other revenue was down $10 million mainly due to lower treasury allocations. Revenue for the nine July 31, was up $97 million or 2% from the same period in. Personal banking revenue was up $198 million, primarily due to volume growth across most products, wider spreads and higher fees. Business banking revenue was up $13 million, mainly due to volume growth and higher fees, partially offset by narrower spreads. Other revenue was down $114 million due to lower treasury allocations and lower revenue in our exited FirstLine mortgage broker business. Provision for credit losses Provision for credit losses was down $32 million from the same quarter last year, mainly due to lower write-offs in the cards portfolio and lower losses in the business lending portfolio, partially offset by a charge resulting from a revision of estimated loss parameters on our unsecured lending portfolios, shown as an item of note. Provision for credit losses was up $8 million from the prior quarter, mainly due to the charge resulting from a revision of estimated loss parameters noted above, partially offset by lower losses in the personal lending portfolio. Provision for credit losses for the nine July 31, was down $110 million from the same period in, mainly due to lower write-offs and bankruptcies in the cards portfolio, partially offset by the charge resulting from a revision of estimated loss parameters noted above. 10 CIBC THIRD QUARTER